Euro crisis: news and questions to start the week

If you knew what he knew you would look serious too. Italian Prime Minister Mario Monti shortly before his government announced new austerity measures for Italy, including raising the retirement age and a wide range of taxes.

1. Take your medicine and the markets will treat you kindly:

Last night Italy's newly-appointed technocratic Prime Minister Mario Monti announced the first stage of his austerity plans. The headline is about pensions (social security). The age at which Italians can start collecting it is rising to 66 by 2018. Under Berlusconi's plans it was supposed to be 2026.

Other key measures property taxes and VAT are going up and there will be 20 billion euros worth of budget cuts put in place.

Italian bond yields have dropped by more than a third of a percent (that's a nice drop in bond market terms) and are now under 6.5 percent for the first time in weeks.

2. If you don't know who Larry Elliott is let me introduce you. Elliott is the Guardian's economics editor and probably the smartest, least hysterical analyst of the euro zone crisis working at the moment.

Today's column is as good a summary as any I have read about where the crisis is at in this make or break week ... and amusing too. It comes in the form of a conversation between John Maynard Keynes and Friedrich Hayek - apparently the pair used to be air raid wardens together at King's College, Cambridge during World War II.

3. One of my own favorite analysts - and I can't give you a link although you can check him out at Bloomberg from time to time - is Stephen Gallo of Schneider FX. Stephen is very good at interrogating the conventional wisdom. These are his questions for those who say the only way for Spain, Italy, Greece et al to return to growth is to leave the euro and regain their old national currencies and then devalue them.

"How do you get European governments to engage in badly needed structural reforms when they have the use of their own national currency which can simply be devalued when things get too onerous or when “reform will power” starts to run out? Doesn’t that predicament mean you have to “lock” the countries’ exchange rates in first, before you can expect them to succeed with reforms? Moreover, if your economy is chronically (i.e. structurally) uncompetitive in the first place, how do successive devaluations – the effects of which fade away over the medium-term – actually fix the problems anyway?"

That's something the Greeks will find out if they are tossed out of the euro. That is not something the Greek elites or even those rioting in the streets want ... but others with bigger sticks inside the euro zone might be happy to say bye-bye to them.